Italy: GDP growth records slowest increase since Q1 2021 in Q4
According to a preliminary reading, GDP growth lost steam in the fourth quarter, falling to 0.6% from 2.6% in the third quarter. Q4’s reading marked the slowest expansion since Q1. On an annual basis, economic growth accelerated to 6.4% in Q4, following the previous period’s 4.0% growth. Meanwhile, GDP grew 6.5% in all of 2021, rebounding from 2020’s 9.0% contraction.
Although a full breakdown has not yet been made available, sectoral data shows that both the industrial and services sectors grew, while agriculture contracted. On the expenditure side, domestic demand had a positive impact on overall GDP growth, but that was offset by a contraction in the external sector.
Looking at 2022, early signs bode poorly for GDP growth. Both business and consumer sentiment soured in January as inflation continued to intensify. In the same vein, elevated energy prices likely dented both consumer spending and industrial output. Consequently, the recent spike in inflation makes higher policy rates more likely in the short term, as seen through the rise in rates for the Italian 10-year bond, which closed 2 February at 1.30%, the highest since May 2020. The pattern of rate rises could spread to commercial loans and limit credit growth ahead, dampening liquidity in the economy.
Loredana Maria Federico, chief Italian economist at UniCredit, was relatively downbeat on the outlook for the first quarter:
“The consumption of services might resume supporting activity [but] there is likely to have been a significant slowdown in services activity already in January, as suggested by a deterioration in confidence indicators. This will probably negatively affect figures for the entire quarter.”